Tunnel Incorporated provided the following information rogarding its single prod

Question

Tunnel Incorporated provided the following information rogarding its single product: Direct materials used Direc lab incurred Variable manufacturing overhead Fixed manufacturing overhead Variable selling and administrative expenses Fixed selling and administrative expenses $220,000 $470,000 $150,000 $100,000 S55,000 S20,000 The regular selling price for the product is $80 The annual quantity of units produced and sold is 42,000 unts (the costs above relate to the 42,000 units production level) The company has excess capacity and regular sales will not be affected by this special order. There was no beginning inventory What would be the effect on operating income of accepting a special order for 5,500 units at a sale price of $54 per product assuming additional fixed manufacturing overhead costs of $15,000 are incurred? (Round any intermediary calculations to the nearest cent.) A. Increase by $179,795 O B. Decrease by $179,795 ° C. Decrease by $164.795 0 D. Increase by $164 795

Explanation / Answer

Incremental revenue 297000 =5500*54 Costs: Direct materials 28820 =220000/42000*5500 Direct labor 61545 =470000/42000*5500 Variable manufacturing overhead 19635 =150000/42000*5500 Fixed manufacturing overhead 15000 Variable selling and administrative expenses 7205 =55000/42000*5500 Incremental income(loss) 164795 Option D is correct

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